Understanding short sales

What is a short sale?According to foreclosureuniversity.com, "a short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000. You write an offer to the lender for $220,000, which is accepted as full payment for the loan."

Pros and cons of short salesPro: Getting the property for less than what it would cost for the owner to reinstate the mortgage can be a windfall for the buyer.Con: Short sales can require more work on the part of the buyer who must also qualify for the transaction -- and often be able to pay entirely in cash.

Did you know?- Frankie Orlando, the author of The Pre-Foreclosure Real Estate Handbook, says that Fannie Mae and Freddie Mac will accept 85 to 90 percent of the fair market values in a short sale, and HUD will accept as low as 82 percent.- To make a case for the short sale, the buyer needs to compile paperwork to prove to the lender that the homeowner qualifies for a short sale payoff.- While a first mortgage will be satisfied in a short sale, buyers also need to consider any secondary liens against the property.- Lenders will more seriously consider short sale offers that are entirely in cash, with a 30-day-or-shorter closing and no contingencies.- The seller or property owner cannot profit from a short sale.

What goes in a short sale packet?Since the average layperson is not familiar with the many nuances and legalities of most real estate transactions, including short sales, working with a Realtor® who specializes in this area can save prospective buyers a lot of aggravation, time and money. Whether you go it alone, or seek professional help, Frankie Orlando, author of The Pre-Foreclosure Real Estate Handbook, says you will need to present the following to a lender for any short sale:

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